ECON 213 TEST 4 QUESTIONS AND
VERIFIED ANSWERS
The characteristics of monopoly - ANSWER-One Seller
Unique Product without substitutes
Barriers to entry and exit
Compare monopoly and a competitive market in terms of price and quantity: - ANSWER-Competitive
markets price is controlled by demand, but can produce more because of many contributors.
Monopoly controls own price through output. Can only produce so much
Natural monopoly: - ANSWER-A monopoly exists because a single large firm has lower costs than any
potential competitor
Government-created barriers to entry: - ANSWER-Licenses (TV, Doctors), Patent (Incentive to innovate)
A price-maker: - ANSWER-Not controlled by demand. Controls price through output
Rent seeking: - ANSWER-Competition among rivals
to secure monopoly profits.
This type of competition produces one winner without the other usual benefits of competition
Inefficient.
Resources used to monopolize rather than become a more competitive firm
Price regulation (ATC pricing and MC pricing) - ANSWER-MC<ATC, so P<ATC (Results in losses)
Regulation must happen to stop firms from over using their power
Conditions for price discrimination: - ANSWER-At least 2 separate markets, re sale will happen. Will
continue to happen then price will eventually become the same
The benefit of price discrimination to the seller and buyers: - ANSWER-Benefit to sellers: draw more
guests/ increase total revenue. Benefit to buyers: cheaper prices for certain groups of people.
Perfect price discrimination - examples - ANSWER--Firm charges a unique price to each consumer equal
to their maxium willingness to pay
-Reservation price = max willingness to pay
-If a firm is able to do this, there will be zero consumer surplus. Why?
Price discrimination - elasticity and price - ANSWER-Charge higher prices for more inelastic customers
Charge lower prices for more elastic customers
The characteristics of monopolistic competition - examples - ANSWER-Many sellers
Differentiated products
VERIFIED ANSWERS
The characteristics of monopoly - ANSWER-One Seller
Unique Product without substitutes
Barriers to entry and exit
Compare monopoly and a competitive market in terms of price and quantity: - ANSWER-Competitive
markets price is controlled by demand, but can produce more because of many contributors.
Monopoly controls own price through output. Can only produce so much
Natural monopoly: - ANSWER-A monopoly exists because a single large firm has lower costs than any
potential competitor
Government-created barriers to entry: - ANSWER-Licenses (TV, Doctors), Patent (Incentive to innovate)
A price-maker: - ANSWER-Not controlled by demand. Controls price through output
Rent seeking: - ANSWER-Competition among rivals
to secure monopoly profits.
This type of competition produces one winner without the other usual benefits of competition
Inefficient.
Resources used to monopolize rather than become a more competitive firm
Price regulation (ATC pricing and MC pricing) - ANSWER-MC<ATC, so P<ATC (Results in losses)
Regulation must happen to stop firms from over using their power
Conditions for price discrimination: - ANSWER-At least 2 separate markets, re sale will happen. Will
continue to happen then price will eventually become the same
The benefit of price discrimination to the seller and buyers: - ANSWER-Benefit to sellers: draw more
guests/ increase total revenue. Benefit to buyers: cheaper prices for certain groups of people.
Perfect price discrimination - examples - ANSWER--Firm charges a unique price to each consumer equal
to their maxium willingness to pay
-Reservation price = max willingness to pay
-If a firm is able to do this, there will be zero consumer surplus. Why?
Price discrimination - elasticity and price - ANSWER-Charge higher prices for more inelastic customers
Charge lower prices for more elastic customers
The characteristics of monopolistic competition - examples - ANSWER-Many sellers
Differentiated products
